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Shareholders Offer a Spate of Climate and Environmental Resolutions

By
Tom Zeller, Jr.

The New York Times

February 18, 2011

After a year marked by Congressional paralysis on issues like global warming and renewable energy, and after a parade of energy-related disasters — including the huge oil spill in the Gulf of Mexico — social investment groups are signaling their displeasure with a suite of shareholder resolutions.

After a year marked by Congressional paralysis on issues like global warming and renewable energy, and after a parade of energy-related disasters — including the huge oil spill in the Gulf of Mexico — social investment groups are signaling their displeasure with a suite of shareholder resolutions.

Not to be outdone, climate skeptics and opponents of government mandates supporting clean energy are sending up resolutions of their own.

According to the Investor Network on Climate Risk, a project of the sustainable investing collective Ceres, at least 66 resolutions relating to climate and environmental issues aimed at more than 40 oil, coal and electric power companies, have been filed in the 2011 proxy season — the period each year when shareholders get a chance to propose measures on a variety of corporate issues.

This is a new high for such resolutions aimed at the energy sector, and a 50 percent increase over the number filed last year, according to the Ceres investor network, whose more than 90 members manage some $9 trillion in assets.

“These are not environmental rabble-rousers,” said Mindy S. Lubber, the president of Ceres. “But there is certainly heightened investor interest in addressing safety issues, in addressing water and climate issues, because the impact on shareholder value can be tremendous.”

Ms. Lubber pointed specifically to the case of BP, which lost tens of billions of dollars in market value in the days after the oil spill in the gulf last year. “When BP loses half its value, that’s a bad thing for investors,” Ms. Lubber said.

Shareholder resolutions, even if supported by a majority, are not binding on the companies they single out. But they can serve as a barometer of rising investor concerns — and of wider shifts in social mores.

Dozens of resolutions have been filed this year with major power producers like Duke Energy, Entergy and FirstEnergy, coal producers like Massey, Peabody Energy and Arch Coal, and oil and gas firms like ConocoPhillips and Exxon Mobil and Cabot Oil and Gas — a major player in the contentious shale gas fields of Pennsylvania.

The resolutions, which come from a wide array of investment groups, labor unions, religious organizations, pension managers and others, include requests for reports on a broad range of environmental topics, like the impacts of extreme surface mining of coal, the potential for gas drillers to pollute drinking water and the environmental impacts associated with development of Canada’s oil sands.

John C. Liu, the New York City comptroller, whose office manages pension funds worth $108 billion, filed resolutions with several companies, including Dynergy and the International Coal Group, asking them to reduce emissions. “Companies that continue the same outdated practices put both the environment and their shareholders at risk,” Mr. Liu said in a statement.

According to analysts at the proxy advisory firm Institutional Shareholder Services, which issued its own report on corporate social issues for the 2011 proxy season, environmental issues constitute the largest area of concern among filers.

Institutional Shareholder Services found that the BP spill had inspired a number of proposals focusing on health and safety issues, including resolutions that seek to link sustainability metrics with executive compensation.

Several companies, including many outside the energy sector, have also been asked to provide more detailed greenhouse gas inventories and to assess the risks of climate change to their bottom lines.

Amazon, the Dr Pepper Snapple Group and SunTrust Banks were among companies that received such resolutions.

“If a utility puts a billion dollars into a coal-fired power plant and a year from now the regulatory rules change on that 40-year investment, well that’s a huge hit,” Ms. Lubber said, noting that the Environmental Protection Agency has already begun rolling out greenhouse gases regulations.

On that point, however, conservative organizations like the National Center for Public Policy Research argue that there is a flip side. The center, which is a nonprofit foundation and an institutional investor, filed shareholder resolutions asking General Electric and Goldman Sachs to issue reports on “the business risk related to developments in the scientific, political, legislative and regulatory landscape regarding climate change.”

The measure is a response to substantial investments the two companies have made in renewable energy and carbon markets based in part on the promise of carbon-reduction legislation or broad, national renewable energy mandates.

A number of bills along these lines were floated in Congress last year, but none managed to gain traction. And even E.P.A.’s regulation of greenhouse gases is being aggressively challenged by Republicans in Congress — and by some states in court.

“Shareholders don’t have a clue about the amount of business risk that is based on this sort of legislation,” said Thomas J. Borelli, a senior fellow at the center, who is directing its shareholder activity. “These companies have their business models based on climate change and fossil fuel prices getting more expensive. If all that doesn’t happen — that’s a huge investment risk.”

Mr. Borelli, who disputes the assessment of most climate scientists that human industry is contributing to planetary warming, said his organization was also supporting the resubmission of a resolution from last year directed at Duke Energy. That company’s chief executive, James E. Rogers, has long advocated for stiff regulation of greenhouse gases, and the resolution requests that the company issue a report detailing its lobbying efforts along these lines, and how that benefits shareholders.

“As we know, science is never a fixed thing — it always changes, and then you reassess your position based on new data — but these companies have gone all-in on the premise that the science is right,” Mr. Borelli said. “But what if it isn’t? What’s their fiduciary responsibility?”